Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5053678 | Economic Modelling | 2016 | 10 Pages |
Abstract
Long memory is an important feature of the volatility of financial returns. We document that the recently developed Realized GARCH model (Hansen et al., 2012) is insufficient for capturing the long memory of underlying volatility. We develop a parsimonious variant of the Realized GARCH model by introducing the HAR specification of Corsi (2009) into the volatility dynamics. A comparison of the theoretical and sample autocorrelation functions shows that the new model specification better captures the long memory dynamics of volatility. We calculate the multi-period out-of-sample volatility forecasts for several return series and find that the new model is a significant improvement over the classic Realized GARCH model.
Keywords
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Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Zhuo Huang, Hao Liu, Tianyi Wang,